US business startups rate at record low,

May 02, 2012|Reuters

WASHINGTON, May 2 (Reuters) - The pace at which newbusinesses are created in the United States dropped to a recordlow in 2010, a troubling development for an economy that isstruggling to achieve higher growth rates necessary to reducehigh unemployment.

The latest Census Bureau data, published on Wednesday,showed the startup rate fell to an all-time low of 7.87 percentfrom 8.10 in 2009.

The figures are based on a survey conducted by the CensusBureau's Center for Economic Studies and the Ewing MarionKauffman Foundation, a nonprofit organization that focuses onentrepreneurship.

The startup rate peaked at 13.02 percent in 1987. Startupsare critical contributors to job creation, and the decliningtrend could help explain the economy's sluggish recovery fromthe 2007-09 recession.

"There are a lot of questions as to why the economy has been slow coming out of the recession, and it is possible that someof that could be explained by the decline in the trend ofstartups and new firms in the U.S. economy," Javier Mirada,principal economist at the Center for Economic Studies, toldReuters.

According to the survey, about 394,000 new businesses wereformed in 2010, creating 2.3 million jobs. In contrast, totalprivate-sector employment fell by 1.8 million between March 2009and March 2010.

Although the economy has now been growing for 11 straightquarters, the pace has been insufficient to bring down theunemployment rate, which remains above 8 percent.

"Without the new jobs created by business startups, theGreat Recession would have been even deeper, with many more jobslost," said Robert Litan, vice president of research and policyat the Kauffman Foundation.

"If we are to achieve and sustain a hearty recovery,policymakers, educators and organizations that helpentrepreneurs commercialize their technologies must be willingto address every obstacle that stands in the way of new businessformation," Litan said.

Only 35 percent of all companies are "young" -- in businessfive or fewer years -- down from nearly 50 percent in the early1980s.

At the same time, entrepreneurial companies accounted foronly 12 percent of U.S. employment in 2010, compared with 20percent in the 1980s.

The entrepreneurs' share of job creation also has fallen, toabout 30 percent in recent years from more than 40 percent inthe 1980s.